Intrinsic value of Electromed - ELMD

Previous Close

$7.46

  Intrinsic Value

$13.24

stock screener

  Rating & Target

str. buy

+77%

Previous close

$7.46

 
Intrinsic value

$13.24

 
Up/down potential

+77%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ELMD stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.04
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  26
  30
  35
  40
  46
  51
  57
  64
  71
  78
  85
  93
  101
  109
  118
  127
  137
  146
  156
  167
  178
  189
  201
  214
  227
  240
  254
  269
  284
  300
  317
Variable operating expenses, $m
 
  20
  23
  26
  30
  34
  38
  42
  46
  51
  56
  61
  66
  72
  77
  83
  89
  96
  102
  109
  116
  124
  132
  140
  148
  157
  166
  176
  186
  196
  207
Fixed operating expenses, $m
 
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  10
Total operating expenses, $m
  22
  25
  28
  31
  36
  40
  44
  48
  52
  57
  62
  68
  73
  79
  84
  90
  96
  104
  110
  117
  124
  132
  141
  149
  157
  166
  176
  186
  196
  206
  217
Operating income, $m
  4
  5
  7
  9
  10
  12
  14
  16
  18
  21
  23
  26
  28
  31
  34
  37
  40
  43
  46
  50
  53
  57
  61
  65
  69
  74
  78
  83
  88
  94
  99
EBITDA, $m
  5
  6
  8
  9
  11
  13
  15
  18
  20
  22
  25
  28
  31
  33
  36
  40
  43
  46
  50
  54
  58
  62
  66
  70
  75
  79
  84
  89
  95
  100
  106
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
Earnings before tax, $m
  4
  5
  7
  8
  10
  12
  14
  16
  18
  20
  23
  25
  28
  30
  33
  36
  39
  42
  46
  49
  53
  56
  60
  64
  68
  73
  77
  82
  87
  92
  98
Tax expense, $m
  2
  1
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
Net income, $m
  2
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  18
  20
  22
  24
  26
  29
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  23
  20
  23
  26
  30
  34
  38
  42
  46
  51
  56
  61
  66
  72
  77
  83
  89
  96
  102
  109
  116
  124
  132
  140
  148
  157
  166
  176
  186
  196
  207
Adjusted assets (=assets-cash), $m
  17
  20
  23
  26
  30
  34
  38
  42
  46
  51
  56
  61
  66
  72
  77
  83
  89
  96
  102
  109
  116
  124
  132
  140
  148
  157
  166
  176
  186
  196
  207
Revenue / Adjusted assets
  1.529
  1.500
  1.522
  1.538
  1.533
  1.500
  1.500
  1.524
  1.543
  1.529
  1.518
  1.525
  1.530
  1.514
  1.532
  1.530
  1.539
  1.521
  1.529
  1.532
  1.534
  1.524
  1.523
  1.529
  1.534
  1.529
  1.530
  1.528
  1.527
  1.531
  1.531
Average production assets, $m
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  36
Working capital, $m
  15
  10
  12
  14
  16
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  74
  78
  83
  88
  93
  98
  104
  110
Total debt, $m
  1
  2
  2
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  15
  17
  18
  19
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
Total liabilities, $m
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
Total equity, $m
  19
  15
  18
  20
  23
  26
  29
  32
  35
  39
  43
  46
  51
  55
  59
  64
  68
  73
  78
  84
  89
  95
  101
  107
  113
  120
  127
  134
  142
  150
  158
Total liabilities and equity, $m
  23
  20
  23
  26
  30
  34
  38
  42
  46
  51
  56
  60
  67
  72
  77
  84
  89
  95
  102
  110
  116
  124
  132
  140
  148
  157
  166
  175
  186
  196
  207
Debt-to-equity ratio
  0.053
  0.110
  0.140
  0.160
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.290
  0.290
  0.290
Adjusted equity ratio
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  18
  20
  22
  24
  26
  29
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
Funds from operations, $m
  -1
  5
  6
  7
  8
  10
  11
  13
  15
  17
  19
  21
  23
  25
  27
  29
  32
  34
  37
  40
  43
  45
  49
  52
  55
  59
  62
  66
  70
  74
  79
Change in working capital, $m
  -2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
Cash from operations, $m
  1
  3
  4
  5
  7
  8
  9
  11
  13
  14
  16
  18
  20
  22
  24
  26
  29
  31
  33
  36
  39
  42
  44
  47
  51
  54
  57
  61
  65
  69
  73
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
New CAPEX, $m
  -1
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -8
  -9
  -9
Free cash flow, $m
  0
  2
  3
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  19
  20
  22
  25
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  57
  60
  64
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
Total cash flow (excl. dividends), $m
  0
  3
  4
  5
  6
  7
  8
  10
  11
  13
  15
  16
  18
  20
  22
  24
  26
  28
  30
  33
  35
  38
  41
  43
  46
  49
  52
  56
  59
  63
  66
Retained Cash Flow (-), $m
  -3
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
Prev. year cash balance distribution, $m
 
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  6
  1
  2
  3
  4
  5
  7
  8
  9
  11
  12
  14
  16
  17
  19
  21
  23
  25
  28
  30
  32
  35
  37
  40
  43
  45
  48
  52
  55
  58
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  6
  1
  2
  3
  3
  4
  4
  5
  5
  6
  6
  6
  6
  6
  6
  5
  5
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Electromed, Inc. develops, manufactures and markets airway clearance products, which apply High Frequency Chest Wall Oscillation (HFCWO) therapy in pulmonary care for patients of all ages. The Company's products include the SmartVest Airway Clearance System (SmartVest System), the SmartVest SQL System and others. As of June 30, 2016, the SmartVest System is available in two models: SV2100 and SQL. The SmartVest System consists of an inflatable therapy garment, a programmable air pulse generator and a single-hose, which delivers air pulses from the generator to the garment. The SmartVest SQL System is small, quiet and light, and offers generator programmability. The Company markets the Single Patient Use (SPU) SmartVest and SmartVest Wrap to healthcare providers, particularly those working in intensive care units. The Company sells its products to the home healthcare market for patients with chronic lung issues, including bronchiectasis, cystic fibrosis and neuromuscular disease.

FINANCIAL RATIOS  of  Electromed (ELMD)

Valuation Ratios
P/E Ratio 30.5
Price to Sales 2.3
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 61.1
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate 13%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 5.3%
Total Debt to Equity 5.3%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 8.6%
Return On Total Capital 10.8%
Ret/ On T. Cap. - 3 Yr. Avg. 10.1%
Return On Equity 11.4%
Return On Equity - 3 Yr. Avg. 10.7%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 80.8%
Gross Margin - 3 Yr. Avg. 77.6%
EBITDA Margin 19.2%
EBITDA Margin - 3 Yr. Avg. 15.7%
Operating Margin 15.4%
Oper. Margin - 3 Yr. Avg. 11.2%
Pre-Tax Margin 15.4%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 7.7%
Net Profit Margin - 3 Yr. Avg. 7.2%
Effective Tax Rate 50%
Eff/ Tax Rate - 3 Yr. Avg. 27.8%
Payout Ratio 0%

ELMD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ELMD stock intrinsic value calculation we used $26 million for the last fiscal year's total revenue generated by Electromed. The default revenue input number comes from 2017 income statement of Electromed. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ELMD stock valuation model: a) initial revenue growth rate of 16.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ELMD is calculated based on our internal credit rating of Electromed, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Electromed.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ELMD stock the variable cost ratio is equal to 65.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5 million in the base year in the intrinsic value calculation for ELMD stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Electromed.

Corporate tax rate of 27% is the nominal tax rate for Electromed. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ELMD stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ELMD are equal to 11.5%.

Life of production assets of 3 years is the average useful life of capital assets used in Electromed operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ELMD is equal to 34.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $19 million for Electromed - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 8.26 million for Electromed is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Electromed at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ ETFs with exposure to Electromed, Inc. : October 18, 2017   [Oct-18-17 09:43AM  Capital Cube]
▶ ETFs with exposure to Electromed, Inc. : October 6, 2017   [Oct-06-17 10:49AM  Capital Cube]
▶ ETFs with exposure to Electromed, Inc. : July 5, 2017   [Jul-05-17 12:40PM  Capital Cube]
▶ ETFs with exposure to Electromed, Inc. : June 19, 2017   [Jun-19-17 03:15PM  Capital Cube]
▶ ETFs with exposure to Electromed, Inc. : May 26, 2017   [May-26-17 01:06PM  Capital Cube]
▶ ETFs with exposure to Electromed, Inc. : April 17, 2017   [Apr-17-17 12:53PM  Capital Cube]
▶ Titan Machinery Elects Two New Board Members   [Feb-28-17 02:35PM  GlobeNewswire]
▶ Electromed, Inc. to Distribute Aerobika® OPEP Device   [Feb-21-17 09:00AM  Business Wire]
▶ Electromed Set to Join Russell Microcap Index   [Jun-21-16 04:30PM  Business Wire]
▶ 7 Stocks Under $10 to Trade for Big Profits   [May-06-16 08:29AM  at TheStreet]
▶ 10-Q for Electromed, Inc.   [May-14  08:11PM  at Company Spotlight]
▶ 10-Q for Electromed, Inc.   [Feb-12  07:07PM  at Company Spotlight]
▶ 10-Q for Electromed, Inc.   [Nov-14  07:09PM  Company Spotlight]
▶ 3 Stocks Advancing The Health Services Industry   [Oct-17  04:32PM  at TheStreet]
▶ Electromed (ELMD) Upgraded From Sell to Hold   [Sep-26  09:05AM  at TheStreet]
▶ 10-K for Electromed, Inc.   [Sep-25  08:08PM  Company Spotlight]
Financial statements of ELMD
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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